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Godty Godty
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A year ago

The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC curves refer to different plant sizes.

Short description: A graph plots output against cost. Long description: The horizontal axis represents output. The vertical axis represents the cost. The graph plots four U-shaped curves. A large U-shaped curve representing LRAC passes through the points, A, C, E, and F. Vertical dashed lines are extended from A, C, E, a point, and F to meet the horizontal axis at Q subscript 1, Q subscript 2, Q subscript 3, Q subscript 4, and Q subscript 5. It encloses three small U-shaped curves. The first curve on the left represents SRATC subscript 1 and it intersects the large curve at A and passes through a point, B. The second curve at the center represents SRATC subscript 2 and it intersects the large curve at E. It also intersects the first curve at a point and it passes through a point, D. The third curve on the right represents SRATC subscript 3 and it intersects the large curve at F. It also intersects the second curve at a point.

FIGURE 8-2

Refer to Figure 8-2. What is the difference between the SRATC curves and the LRAC curve?



▸ The SRATC curves show the lowest attainable cost of production at each level of output when all factors are variable in the short run, whereas the LRAC curve shows the same in the long run.

▸ The SRATC curves show the optimal plant size when all factors of production are variable, whereas the LRAC shows the lowest cost attainable associated with each LRAC curve.

▸ The LRAC is an envelope curve, joining the minimum points on all SRATC curves.

▸ For the SRATC curves, one or more of the factors of production is fixed, whereas for the LRAC curve, all factors of production are variable.

▸ The SRATC curves show diseconomies of scales, whereas the LRAC curve shows economies of scale.
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Microeconomics

Microeconomics


Edition: 17th
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hemmatmahdi12hemmatmahdi12
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Godty Author
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I appreciate what you did here, answered it right Smiling Face with Open Mouth
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Just got PERFECT on my quiz
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Helped a lot
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